[NYTr] Booming Economy (But Whose?) - Oil Exceeds $95; Gold at 28-Year High

Wed Oct 31 19:50:42 EDT 2007

Reuters - Oct 31, 2007
http://investing.reuters.co.uk/news/articleinvesting.aspx?type=allBreakingNews&storyID=2007-10-31T212443Z_01_L3141508_RTRIDST_0_MARKETS-COMMODITIES-UPDATE-4.XML

UPDATE 4:

Record oil tops $95, gold at 28-year high

Wed Oct 31, 2007 9:24 PM BST

(Updates with oil price rising past $95, gold higher)

By K.T. Arasu

CHICAGO, Oct 31 (Reuters) - Oil hit a record high past $95 a barrel on
Wednesday as U.S. stockpiles slumped unexpectedly last week, while gold
rose to a 28-year high as the dollar fell after the Federal Reserve cut
a benchmark interest rate.

Industrial metal copper was choppy in electronic trading, supported by
better-than-expected U.S. third-quarter economic growth. Corn and
soybeans rallied on the back of crude oil, with soyoil climbing to a
33-year high.

Increased cross-asset holdings by investment funds over the past few
years as they diversified their portfolios have led to commodity
markets as varied as gold to corn to soyoil rising or falling in tandem
as these pools of money shift positions.

Oil surged after slumping below $89 as U.S. weekly crude oil
inventories fell by 3.9 million barrels last week, against analyst
expectations for stocks to rise by 600,000 barrels.

Crude oil futures <CLc1> were $4.66, or 5 percent, higher at $95.05 per
barrel at 1610 CDT (2110 GMT), the highest price for a front-month
contract since the exchange launched crude futures in 1983. It hit a
contract high of $95.28.

The market was underpinned by news that the U.S. economy grew at a
surprisingly brisk rate in the third quarter despite a battered housing
sector and high oil prices, helped by a pick up in consumer spending
and strong exports. [ID:nN31287901]

Gross domestic product, which measures total production within U.S.
borders, rose to a 3.9 percent annual rate, up from 3.8 percent in the
second quarter for the strongest quarterly growth since 4.8 percent in
the first quarter of 2006.

As widely expected, the Federal Reserve cut the overnight federal funds
rate by 25 basis points to 4.5 percent. The Fed cut rates by an
aggressive half-percentage point last month.

The dollar fell to a record low against the euro after the rate cut on
Wednesday and as the Fed said the pace of economic growth in the United
States will slow this year.

An interest rate cut would shave the dollar's yield advantage relative
to other assets. A weaker dollar, however, benefits export commodities
as they will cost less overseas.

GOLD RISES

Gold futures hit a new 28-year high, buoyed by the weaker dollar and
the surge in crude oil prices.

Spot gold <XAU=> rose to $795.40/796.20 at 1610 CDT (2110 GMT), against
$781.25/781.85 in New York late on Tuesday, rising past Monday's peak
of $794.40 -- the highest level since January 1980 -- to a high of
$796.50.

Copper futures were choppy, drifting between gains and losses in
electronic trading underpinned by U.S. economic growth after ending the
pit session lower.

U.S. copper for December delivery <HGZ7> was up 0.30 cent at $3.4845 a
lb at 1420 CDT (1920 GMT).

Chicago Board of Trade corn and soybeans were higher amid support from
crude oil and the weak dollar, which will boost export prospects for
the crops.

CBOT December corn <CZ7> ended 5-1/4 cents higher at $3.75-1/2 a
bushel, while November soybeans <SX7> rose 18 cents to $10.10. December
wheat <WZ7> was down 6 cents at $8.08, unable to hold its early gains.

Front month prices on the London robusta coffee futures complex soared
due to a supply squeeze with the harvest from top global producer
Vietnam not expected to gather pace for another two or three weeks.

The benchmark November contract <LKDX7> was up $58, or 2.6 percent, at
$2,270 per tonne after setting a high of $2,275.

(Additional reporting by Veronica Brown, Nigel Hunt and Santosh Menon
in London and Nick Trevethan in Singapore)

© Reuters 2007. All rights reserved

Earlier stories:

AP via Google - Oct 31, 2007
http://ap.google.com/article/ALeqM5i5TtajgUpSm7KY5jf-lCJGHBB-tAD8SKE7702

Oil Nears $95 on Supplies, Fed Rate Cut

By JOHN WILEN

NEW YORK (AP)--Oil futures soared again Wednesday to a new record near
$95 a barrel after the government reported another unexpected drop in
crude oil inventories and the Federal Reserve cut interest rates by a
quarter point.

Interest rate cuts generally support oil prices because they tend to
send the dollar downward; the dollar is already at a record low against
the euro. Oil futures have been driven to record levels in recent
months partly because they offer a hedge against a weak dollar.

However, many stock and bond investors were disappointed by the Fed's
warning that further interest rate cuts weren't assured because of the
risks of inflation — which is being driven in part by higher energy
prices. Indeed, oil investors initially seemed unhappy with the Fed's
warning. Crude prices dropped as much as a dollar from earlier highs
immediately after the decision was announced, before rebounding due to
the greater impact of last week's surprise decline in inventories, the
second straight unanticipated drop.

Light, sweet crude for December delivery rose $4.15 to settle at $94.53
a barrel on the New York Mercantile Exchange after rising as high as
$94.74, a new trading record. Crude prices are near inflation-adjusted
highs hit in early 1980. Depending on the how the adjustment is
calculated, $38 a barrel then would be worth $96 to $101 or more today.

In its weekly inventory report, the Energy Department's Energy
Information Administration said oil supplies fell by 3.9 million
barrels last week. Analysts surveyed by Dow Jones Newswires, on
average, had expected an increase of 100,000 barrels.

Much of that decline was due to a big drop in crude supplies at a
closely-watched oil terminal in the Midwest.

"The market is clearly reacting to the larger than expected 3.9 million
barrel drop in crude oil inventories, including a stunning 3.1 million
barrel drop at the Cushing, Okla., delivery point for the Nymex (crude)
futures," wrote Tim Evans, an analyst at Citigroup Inc. in New York, in
a research note.

Cushing supplies have been under pressure in recent months due to
differences in the price between front-month oil contracts and those
for delivery in future months. This price difference, or spread, has
given storage tank owners a financial incentive to sell their oil,
rather than hold it in inventory. Analysts have also blamed falling
Cushing supplies, in part, for the rally in which oil prices have
jumped 35 percent since August.

"It's all about Cushing," said Jim Ritterbusch, president of
Ritterbusch and Associates in Galena, Ill., "That's going to just
keep ... investment capital roaring into this market."

Other energy futures followed oil's lead. November gasoline jumped 8.29
cents to settle at $2.34 a gallon on the Nymex. Gasoline prices were
also supported by news of a fire Wednesday at a 172,000 barrel-per-day
London refinery owned by Swiss-based Petroplus Holdings AG.

November heating oil added 8.32 cents to settle at $2.5078 a gallon.
November gas and heating oil futures expired Wednesday afternoon.

December natural gas rose 30.9 cents to settle at $8.33 per 1,000 cubic
feet on the Nymex.

In London, December Brent crude rose $3.19 to settle at $90.63 a barrel
on the ICE Futures exchange.

The EIA also reported that refinery activity fell by 0.9 percentage
point last week to 86.2 percent of capacity. Analysts had expected an
increase of 0.5 percentage point.

Supplies of gasoline rose last week by 1.3 million barrels. Analysts
expected a 400,000-barrel decrease.

And inventories of distillates, which include heating oil and diesel
fuel, rose by 800,000 barrels. Analysts had expected a 1 million barrel
decrease.

Crude imports rose last week by an average of 278,000 barrels a day to
9.4 million barrels a day. Gasoline imports jumped last week by 400,000
barrels a day to an average of 1.2 million barrels a day.

Gasoline demand dipped by 18,000 barrels last week last week, but has
risen over the last four weeks by about 0.3 percent over the same
period last year.

It was the second week in a row the EIA reported a sharp and unexpected
drop in oil inventories. Last week's 5.3-million barrel decline sparked
a 10 percent price rally.

John Duff, manager of the EIA's weekly report, said part of the drop in
Cushing inventories likely occurred during the previous week, but that
reporting was delayed due to a late or incomplete survey response.

It could take several days for the full impact of this week's report to
be felt, Ritterbusch said.

"As soon as I saw the drop in Cushing stocks, it looked to me like
(this) has $95 (a barrel oil) written all over it," Ritterbusch said.

                                 ***

 AFP via Yahoo - Oct 31, 2007
http://afp.google.com/article/ALeqM5hkCs7FFZibI62UwWHFG_wy98IdLw

Oil smashes 94-dollar barrier on Fed rate cut, tight US supply

NEW YORK (AFP) — Oil prices hit fresh record highs on Wednesday, with
New York crude topping 94 dollars, after the Federal Reserve lowered
interest rates and news of a surprise decline in US crude stocks.

New York's main futures contract, light sweet crude for delivery in
December, soared 4.15 dollars to a record closing high of 94.53 a
barrel, demolishing Monday's record of 93.80 dollars.

The New York contract earlier soared to a new intraday peak of 94.74
dollars.

In London, Brent North Sea crude for December delivery jumped 3.19
dollars to settle at 90.63 dollars a barrel, also setting an intraday
all-time high, at 90.94 dollars.

Oil prices were boosted by the US Federal Reserve's decision to lower
its base federal funds rate by a quarter of a percentage point to 4.50
percent.

The rate cut pushed the euro above 1.45 dollars for the first time,
hitting 1.4504 dollars nearly an hour after the Fed's announcement. It
had traded at 1.4441 dollars in New York late Tuesday.

A weak US unit encourages oil demand because it makes dollar-priced
commodities cheaper for buyers using stronger currencies.

Oil futures also were underpinned by the US Department of Energy's
(DoE) weekly snapshot of energy reserves. The DoE announced Wednesday
that crude inventories tumbled by 3.9 million barrels to stand at 312.7
million barrels in the week ended October 26.

That shocked the market because consensus forecasts had been for a gain
of 400,000 barrels in the reserves of the world's biggest energy
consumer.

"The market is clearly reacting to the larger-than-expected drop in
crude oil inventories," said Citigroup analyst Tim Evans.

Meanwhile, the market shook off the DoE data on US distillates, which
include diesel and heating fuel, that showed a gain of 800,000 barrels;
the market had expected a drop of one million barrels.

The oil market this week has been rocked by volatile trading linked to
worries about tight global energy supplies.

After striking record levels on Monday, prices plunged by around three
dollars Tuesday as traders took profits. However, news of dwindling US
crude reserves sent prices rocketing.

The volatile price action "reflects current trading conditions
characterized by market participants (being) prone to test new highs
but still uneasy over the sustainability of the progress made," said
Kevin Norrish at Barclays Capital.

"In this context, volatility is set to stay high and prices will likely
react sharply on the back of little fresh news." 

                              ***